Climate change—long a serious issue for governments and industry around the globe—is an issue that might significantly change the way the solid waste industry does business. It is time for landfill owners and gas-project developers to consider the option of greenhouse gas–emissions trading, not only for their own benefit, but to ensure the MSW industry place at the table when it comes to the worldwide emission reductions forum.

By Tom Kerr

Climate-Change Policy: Where Is It Today?
GHG-Emissions Trading and Landfills
Sample LFG GHG Calculation
Next Steps

As a result of efforts by the US Environmental Protection Agency’s (EPA) Landfill Methane Outreach Program and the Solid Waste Association of North America, most landfill owners know that their sites naturally produce landfill gas (LFG), which is about 50% methane, 45% carbon dioxide, and 5% other constituents. Many landfill owners also know that landfill methane is a potent greenhouse gas (GHG) with 21 times the heat-trapping potential of carbon dioxide on a molecule-per-molecule basis. Landfills are also the largest source of human-caused methane in the United States, contributing about 4% of total US annual GHG emissions. Landfill owners and gas-to-energy project developers are already making significant low-cost GHG-emissions reductions by installing LFG flares and energy-recovery systems. As the science of the climate-change debate advances, the solid waste industry should realize that climate change may have a significant impact on way we operate our landfills.

This article will discuss the current state of climate-change policy, including current legislative efforts in Congress, state government activities, and private-sector–emissions trading. It will then focus on GHG-emissions trading as an activity that landfill owners and gas project developers might want to consider. Finally, it will examine how GHG-emissions trading might work at a sample landfill.

Climate-Change Policy: Where Is It Today?

World governments have been meeting since the 1980s to discuss what should be done about the phenomenon of global warming, also known as climate change. Since 1992, when the Framework Convention on Climate Change was introduced, scientists around the world have become increasingly convinced that the climate is changing as a result of emissions from such activities as driving cars, burning fossil fuels for electricity, and depositing our trash in sanitary landfills. In December 1997 in Kyoto, Japan, governments agreed to the Kyoto Protocol, which was groundbreaking in that it committed governments for the first time to binding GHG-emissions reductions targets. Since that important event, the world climate-change bureaucracy has been hammering out the details that will enable it to make real progress toward implementing the goals of the Kyoto Protocol.

In Kyoto, the US agreed in principle to reduce its emissions of greenhouse gases to 7% below 1990 levels by the period 2008-2012. This was an ambitious goal for the world’s biggest producer of GHGs, and one that did not sit well back home with many politicians. The president has hesitated to present the Kyoto Protocol to Congress for ratification, as the Senate made it clear in a 92-0 resolution that it would not consider a climate treaty that did not include "meaningful participation" by developing countries. Those against taking action to combat climate change feel that the US should not do anything until rapidly growing, developing countries such as China and India commit to GHG reductions. However, those who support the Kyoto Protocol argue that as the world’s biggest historic and per-capita emitter of GHGs, the US is morally obligated to take action first to demonstrate its commitment. As a result of these political maneuverings, many have called the Kyoto Protocol "dead on arrival" in US politics and doubt that any real action will occur in the next few years.

However, in the past two years or so, another approach has emerged and is growing in momentum. Many forward-thinking companies have spoken up, saying that while current climate-change science is not without controversy, the rising trend in global mean temperatures (along with the increase in dramatic weather events) is something that warrants serious action. These companies are voluntarily pledging to reduce their emissions by fuel switching, efficiency improvements, or other means. These leaders include companies as diverse as energy-producer BP Amoco, chemical-producer DuPont, and equipment manufacturer United Technologies. An interesting point to note is that, although they make up a significant portion of US greenhouse gas emissions, solid waste companies have not yet played a role in the climate-change debate.

BP Amoco and other companies have focused on two points that they would like to see in any future GHG mitigation regime: credit for voluntary early action and emissions trading. Both of these approaches could affect the solid waste industry. Credit for early action is a phrase that has been used ever since a government official assured an industry representative that there would be "credit" for "early" emissions reductions (i.e., those completed before the 2008 Kyoto deadline). Since that statement, utilities and others that have made GHG reductions have made credit for early action one of their main goals in any future GHG regime. In a nutshell, companies that are reducing GHGs today are concerned that in the next few years the government will issue GHG-control regulations that penalize by putting them in the same boat as their less progressive competition. Thus, companies are looking for a way to receive credit against future regulatory requirements. There are a handful of bills in Congress that address this issue, notably Senate Bill 547 and House Bill 2520. Both proposals allow the president to enter into agreements with companies whereby the company spells out its plan for emissions reductions in the coming years and the president agrees to provide credit for these activities in future regulatory regimes, when they come into being. This legislative action is encouraging, but congressional staffers have reported that these bills are not receiving much attention from Congress for a variety of reasons, including the complexity of the climate-change issue, the strong opposition of many representatives against any kind of climate-change–related legislation, and the lack of a strong, cohesive industry voice demanding action. The solid waste industry can and should add its voice to the early credit debate, as it stands to benefit if legislation is passed.

Emissions trading is a concept used most notably in EPA’s Acid Rain Program and involves the government identifying a group of polluters, setting a cap on their emissions, and then letting the market dictate how companies choose to reduce their emissions. This is an innovative alternative to regulations that require a certain type of technology or process, and it allows aggressive companies to install pollution-control equipment, reduce below their requirement, and then sell these reductions as "emissions credits" to other polluters that have not met their requirements. The Acid Rain Program has successfully reduced emissions below EPA’s projections and at a lower cost to industry. This success has led many people to focus on emissions trading as the way to combat GHGs. The discussion below will explain how landfill owners and gas-to-energy project developers may be able to take advantage of GHG-emissions trading.

Finally, apart from this federal action, there has been quite a bit of recent activity on two additional fronts: at the state government level and in other countries. First, many states—including Wisconsin, New Hampshire, and New Jersey—are close to announcing state-level GHG trading registries that would allow companies to make GHG reductions and report them to the state. The state will then back up the companies when they apply for GHG credit at the federal level. These states have also developed Climate Change Action Plans that include aggressive goals toward GHG reductions. In fact, New Jersey announced recently that it was surprised to see the large contribution that landfill methane emissions made to its total GHG emissions. Finally, these states are beginning to encourage emissions trading as a way to achieve low-cost GHG reductions. For example, New Jersey has finalized an Open Market Trading Rule that will include landfill methane reductions as eligible for trading on the state level.

Second, Canada, Japan, and some European nations are beginning to get serious about taking action on climate change. For example, Denmark has already passed legislation that requires GHG control, and the United Kingdom has announced that it plans to put in place a mandatory GHG-emissions trading program by 2001. For its part, Canada has begun a pilot emissions trading program and is actively encouraging landfill methane utilization as a key component of its national climate action plan.

What does all of this climate-change–related activity mean for the solid waste industry? LFG control and utilization are two of the most attractive near-term solutions to the climate-change problem. This is a result of a few key factors: (1) LFG utilization is proven, with over 250 operational projects in the US today; (2) landfill methane is 21 times more potent a GHG than carbon dioxide, which means that these projects deliver more bang for the buck compared to energy-efficiency and renewable-energy options; (3) LFG-emissions reductions are easily verified and reported, typically through metering the flare or energy recovery equipment; and (4) large landfills have already been required to initiate gas control through EPA’s New Source Performance Standards (NSPS) and are not likely to be regulated further for GHG compliance reasons. This last point is important, as it means that in a future GHG-emissions trading regime, landfills may be allowed to voluntarily opt-in with low-cost reductions that utilities and other large GHG emitters can use to meet their requirements. This may not occur, however, without a concerted effort by landfill owners and gas project developers to educate Congress, state governments, and local governments about the benefits of LFG utilization.

GHG-Emissions Trading and Landfills

While the climate-change policy debate inches forward, some landfill owners and gas project developers have begun to trade their LFG reductions in the emerging market for GHG-emissions reductions. To date, a handful of LFG-related GHG trades have occurred. This emerging market is a private market, without the strictures (or guidance) of a government program. The primary driver in this market is the desire of forward-thinking companies to purchase GHG reductions as a type of insurance against a future GHG regulatory regime. As a result, while there are currently no GHG regulations in place, the possibility of future regulation is driving current emissions trading efforts.

In the current market, LFG-based GHG reductions are marketable if they meet a few initial criteria:

• The reductions must be surplus to regulatory requirements. In the solid waste arena, this means that a landfill must not fall under the federal NSPS regulations, state regulations, or local requirements for gas collection and control. While there are many nuances to this standard, the important point to remember is that buyers are not attracted to reductions at landfills that may be required by regulation to control their gas.
• The seller must demonstrate clear ownership of the emissions credits. The best situation is when the seller retains title to all emissions credits arising from the LFG. If the seller does not have clear title, the buyer may require them to obtain documentation that proves their title to the credits.
• The reductions must be evaluated, monitored, and reported by a qualified third-party entity. LFG quality and quantity are easy to measure with simple flare meters or energy sales data. However, buyers will likely require that the seller hire an independent third party to assess the amount of GHG reductions that are occurring (or have occurred) at a particular site on a regular basis.

If a landfill owner has been operating a flare or gas-to-energy system any time after 1990 (the first year for GHG credit availability), he should investigate whether his sites meet the above criteria. If they do, they may have value in the GHG credit market.

Sample LFG GHG Calculation

To demonstrate the potential value of landfill methane emissions reductions in the emerging GHG market, we will use a sample landfill of average size. Let’s assume that this landfill opened in 1985 and is expected to close in 2000. The site currently covers 43 ac., has an average depth of 50 ft., and has about 2.1 million tons of waste in place. The annual waste acceptance rate is 150,000 tons. The landfill owner installed a collection system and flare in 1989 and worked with an LFG project developer to install an electricity-generation project in 1993. The electricity project is expected to operate for 15 years. The site is not affected by EPA’s NSPS, as it does not meet the 2.5-million-megagram (Mg) waste-in-place criteria. We will also assume that either the flare or energy-recovery equipment is operating at all times at a 98% destruction efficiency. The site is currently collecting 600 ft.³/min. of LFG, and we’ll assume that the gas generation rate will decline by 5% each year after it closes. These assumptions are presented in Table 1.

Table 1. Data and Assumptions

In estimating the total GHG reductions available from the site, we will start in 1990 and extend until 2012, the end of the Kyoto Treaty’s first compliance period. This is because some companies are interested in historic credits—i.e., those that occurred between 1990 and the present. Others are interested only in credits starting today and going forward until 2012. As shown in Table 2, our sample landfill is destroying an average of over 49,000 Mg of carbon-dioxide equivalent each year.

In addition, LFG-to-energy projects may be able to market their displaced emissions. Displaced emissions are those that would have been generated by a similarly sized fossil-fuel plant. For this analysis, we’ll assume that the project is displacing 100% natural gas–fired electricity. On average, the sample project will displace 6,500 Mg of CO₂ equivalent each year.

What are these reductions worth? Assuming that the seller can market these reductions at $1.50/Mg CO₂ equivalent, the project’s reductions are worth over $80,000/year, on average. The seller might be able to sell these reductions if the seller can demonstrate that the site is not regulated, that the seller retains ownership to the reductions, and that it has developed a suitable protocol for monitoring and reporting its emissions reductions.

Next Steps

As the result of the first trades that have occurred, we have seen that LFG emissions reductions hold value in the emerging GHG-emissions market. However, we need to consider a few final points. First, the market for GHG reductions is just beginning to emerge. As a result, sellers might not find active buyers for all of their LFG reductions. Second, the $1.50/ton CO₂ equivalent that we used to calculate the potential value of the sample landfill’s emissions reductions might not be the actual price that one can get on the market today. It may be higher or lower, as it is purely based on demand. Third, some argue that displaced emissions might not have much value in the GHG market unless it can be demonstrated that a utility (or other generator) has lowered its generation as a direct result of the LFG-to-energy project. As a result, sellers might not find buyers for GHG reductions from displaced emissions in the early GHG market.

Finally, the important thing to remember is that the rules on emissions are just being put into place now. The solid waste industry needs to ensure that it has a seat at the table in the climate-change debate, and it can do this by taking the following steps at both a company and an industry level:

• Landfill owners should complete a companywide inventory of methane emissions reductions. This includes collecting data on the company’s LFG flare and gas-to-energy system operations, including the dates these projects went into service and actual gas reductions that occurred. It is important to remember that the better data you have on your GHG reductions, the more attractive they are to a potential buyer.
• Maintain good records of landfill methane emissions reductions. Once landfill owners have performed an initial inventory, they should monitor flares and gas-to-energy systems and develop a regular (at least monthly) reporting protocol that collects information on the quality and quantity of the gas that is destroyed.
• Ensure that you have the rights to emissions reduction credits in your contracts. Whether you are a landfill owner or gas project developer, you should make sure that all gas-rights agreements and other project contracts clearly spell out the ownership of past and future emissions reductions. Otherwise you could face a legal battle over ownership of the credits in the future.
• The solid waste industry needs to take a proactive stance on climate change. The bottom line is that the climate-change issue might significantly change the way the solid waste industry does business. Possible government responses range from offering incentives for LFG utilization to requiring all landfills to collect and destroy their methane. The industry has come a long way up the climate-change learning curve since the early 1990s, but it needs to begin an even more aggressive participation in the climate-change policy process. This means expanding current educational and advocacy efforts to local, state, and federal governments and private industry, including participating in the emissions trading and credit for early-action debates. It also means emphasizing that the solid waste industry has cost-effective, proven methods that reduce landfill methane. Finally, it means demonstrating that more regulation is not necessary to achieve more GHG reductions from the solid waste industry; flexible approaches such as emissions trading will deliver more for the environment and the economy.

MSW